El Niño-related weather conditions could endanger coffee crops around the world and drive up prices

An
employee uses a cash till behind a chocolate shaped as a one Euro
coin and placed for sale in a coffee cup, at a cafe in central
London, October 15, 2014.REUTERS/Toby
Melville

Persistent drought conditions exacerbated by the
El Niño weather system could damage coffee crops around the
world and cause a spike in the crop’s price.

Dryness in Brazil and Indonesia, the second- and
third-largest producers of robusta beans, appears likely to
be intensified by El Niño, which, according to Reuters, endangers
production. (Brazil is theworld's largest overall coffee producer,
while Indonesia is number three.)

In Colombia, the second-largest producer of arabica beans after
Brazil, El Nino-related dryness seems poised to worsen an already
intense drought, which could damage the country's output.

Arabica and robusta beans are the two most common types of coffee
beans grown around the world. Arabica beans make up the majority of the world's production and
are generally regarded as of higher quality than robusta beans, which are grown at lower
altitudes and usually sell for much cheaper.

The financials

Concerns about Brazilian coffee output — which rose by
nearly 24% in the first quarter of this year — focus on the
coastal state of Espirito Santo, just north of Rio de Janeiro,
which leads
Brazil in robusta-bean production.

The entire country, however, is currently facing a
severe drought, and its most populous region is mired in the
worst dry spell since data collection began more than80
years ago.

As a result, Benchmark ICE futures for robusta-type coffee
reached $1,856 per ton
($1,684 per metric ton) on November 5,
likely driven up by
worries about supplies diminished by drought related toEl
Niño weather conditions in Brazil and
Indonesia, according
to Reuters.

A
worker carries packs of arabica coffee beans at Conquista farm in
Alfenas in the southern Brazilian city of Minas Gerais, July 7,
2008.REUTERS/Paulo
Whitaker

Drought in Espirito Santo has caused robusta output in
Brazil to fall from 13.04 million 132-pound
bags during the 2014-2015 season to 10.85 million
during the 2015-2016 season, according to Reuters. Forecasts from earlier
this year saw the downturn in robusta production leading an overall decline in Brazilian coffee
production.

Irrigation bans are in place in Espirito Santo due to the ongoing
drought, and, depending on possible rains in the coming days, may
to remain in place until the end of this month.

“At the moment it does not look likely that the authorities will
lift the irrigation bans,” in Espiritu Santo, Carlos Mera, an
analyst with Rabobank, told Reuters.

Maps
coffee-producing countries, includes chart of top consumers and
prices.Reuters

Robusta production in Indonesia, thethird-largest producerof that type of
bean, could
dropfrom 6.7 million 132-pound bags in 2015 to
5.8 million to 6 million bags next year, depending on how badly
El Niño affects the crops — a decline that could cause a dramatic
spike in the cost of robusta beans,Saimi Saleh, the deputy
chairman of the Associate of Indonesian Coffee Exporters and
Industries, explained to Reuters.

Robusta beans make up more than 80% of Indonesia's production, and
some observers believe the country will be the hardest-hit
producer.

“Out of all the effects that El Nino has on coffee
production worldwide, its effects on Indonesia are the most
likely,” Carlos Mera, a Rabobank analyst, told Bloomberg in October.

“If El Nino goes on like this, world prices could be
doubled,” Saleh told Reuters.

Other observers cautioned that it isn't yet clear what, if
any, effect adverse weather conditions could have on prices.

“Despite El Nino-related losses in Brazil and Indonesia, we
cannot get too bullish on robusta prices,” a broker in
London told Reuters. “This would change if the drought continues
for a few more weeks.”

He also noted it would require a “huge loss” of around 3
million bags to offset additional production from Vietnam.

‘We farmers are in total despair’

In Colombia, the world’s third-largest producer of coffee, an
ongoing drought driven by El Niño
threatens the health of this season’s coffee crop, while
adverse labor conditions could mean healthy beans get left to
spoil.

A
Colombian coffee grower picks coffee beans in a farm near the
small town of Monserrate, July 18, 2008. Monserrate, with about
2,000 inhabitants, is located 1,700 meters high, amid the
mountains of the department of Huila.REUTERS/Jose Miguel Gomez

In October, coffee futures
fell the most they had in seven months after Colombian coffee
growers, who supply the second-most
arabica beans in the world, announced they would ease
restrictions on exports to aid farmers who were dealing with
drought conditions.

Projections announced in October saw Colombian production
falling 18% in the second half of the year. Roberto Velez,
the head of the Colombian Coffee Growers Federation,
attributed the decrease to El Niño, which will also
negatively affect the quality of beans produced.

The northern and western parts of Colombia have been experiencing
El Niño-related dryness since earlier this year, and conditions
are expected to intensify. Water shortages related to the weather
phenomenon have prompted some
to call for a national state of emergency.

“It has been nearly six months, and they forecast it will be like
this for five months more, Raul Fajardo, a grower in southwestern
Nariño state, told
Colombia Reports. “That would ruin farmers in this region.”

Along with protracted drought, coffee growers are now facing
competition for labor, as demand
for construction workers, who are paid better than coffee
harvesters, has grown; that demand is only expected to increase
as public-works projects get underway.

Coffee beans that go unharvested become susceptible to rot and
pests, which could further drive down production and reduce the
quality of beans that do reach the market.

Water has, in recent years, had a
dramatic effect on Latin American politics; it now appears to
be influencing the region’s economic outlook, as well.

“We farmers are in total despair,”
said Fajardo, who fears his harvest “is about to be
lost."